Universal health care is good for the rich

by Alan Cohen

As I mentioned in my last post, I’ve been reading T. R. Reid’s book The Healing of America, a look at different health care systems across the world and what the US can learn from them. The basic point of the book is that in every other industrialized country, there is some form of universal health care, which always results in much less total spending on health care and substantially better health outcomes.

Towards the end, Reid compares two hypothetical American women, rich and lower middle class, who are diagnosed with ovarian cancer. He suggests that the US system works fine for the rich woman, who gets diagnosed early, gets surgery costing $55,000, and lives another 40 years, whereas the working-class woman has no insurance, gets diagnosed too late, and dies because she can’t get surgery.

The basic point of his argument, one made often, is that the US system is really bad for the poor and uninsured. This is undoubtedly true. But there’s another argument we should be making, and are not: the US system is also worse than the alternatives for people who are rich or have good health insurance – for just about everyone, in other words.

Clearly, the stakes are much higher for someone at the lower end of the income spectrum – often life or death. The estimate in the book is 20,000 Americans who die each year simply because they did not have health insurance. But the uninsured, though numerous, are not a majority, and political success at change (beyond Obamacare) may depend on our ability to convince those with coverage that they would be better off under an alternative system.

So how is it possible that the US system is worse for the rich? There are a number of ways, but also some ways the current system benefits the rich. (By the rich, I mean anyone who doesn’t need to worry about money for health care, including those with guaranteed health care coverage through stable jobs.) I will try to present both lists of arguments fairly and summarize how they balance at the end.

I assume that the alternative to the current US system is an unspecified form of universal coverage like those in most industrialized countries. I assume that, like Germany or the Netherlands but unlike Canada, there are extensive additional private services available outside the univeral coverage system – this is clearly in keeping with American values, and would be part of any American universal coverage system.

Ways the rich might benefit

1) Cheaper health care. In 2009, Americans spent an average of $7960 per person for health care. It was just $5352 in Norway, the second highest country. Put in terms of GDP, Americans spent 17.4% of GDP on health care. In second place Netherlands, it was 12%. In Japan, with one of the best health care systems, it was 8.5%, less than half of the US.

The reasons American health care is so much more expensive are complex, but a large part of it is the administration costs of a private, for-profit insurance system, about 20% compared to 3% for Medicare. You can read the book for more detail, but suffice it to say that Obamacare may or may not bring down costs long-term, but a universal coverage system modeled on any other developed country certainly would, through lower administrative costs, better preventive care, and perhaps and end to fee-for-service payments.

Of course, from the perspective of the rich, it may not be enough to know that total costs will fall – they will want to know that their costs will fall. Which brings us to the second point…

2) Less progressive distribution of health care costs. I’m not as certain about this argument (see the counter-argument below, on a more progressive tax structure), but I am guessing that health care costs are actually more progressive (i.e., paid more by the rich) in the current US system than in other countries. It’s quite a complicated question, since some health care is paid for through government taxes (which may vary state to state), some is paid for by hospitals obliged to provide emergency services, some is paid for by charities, some is paid for by individual insurance premiums, and some is paid for by employer insurance premiums.

But overall in the US, the uninsured don’t pay much for the health care they receive – they show up at the emergency room and are unable to pay the bills. These costs are absorbed by the hospital and then passed on to others via higher fees for those who can pay. Perhaps someone has studied this, but without having run the numbers, it is a reasonable guess that, even absent the overall savings of a universal coverage system, the rich would pay less because there would be better mechanisms to shift some of the costs to those who are currently uninsured, such as mandating them to buy coverage.

3) Better quality care. As counter-intuitive as it seems, I am convinced (as are many other researchers who are better experts) that the current US system provides relatively poor quality health care, even for those who have access. Clearly the US is one of the most technologically advanced countries, but much of the improved technology has relatively marginal effects. That fancy new cardiology procedure that costs $30,000 more than the old one may only show an improvement of 1%. At the same time, the profit motive encourages many doctors to recommend unnecessary and potentially harmful treatments, as seen in the recent Florida scandal with cardiologists. Changing to a universal coverage system would likely improve the quality of care by improving effective but less sexy preventive care and by getting rid of perverse incentives to over-prescribe ineffective and dangerous procedures.

4) Better knowledge about the best care. In the current US system, decentralization means that it is hard to get good data on what works and what doesn’t. Other countries with more unified systems have centralized databases and can perform systematic analyses with large numbers of patients to see what treatments work best. In the US, the analyses are hard to do, and so we often don’t know – particularly for the questions where we cannot generalize from other countries’ results.

For example, I am currently working on a study that seems to show that a common combination of three medications increases the risk of heart disease relative to other combinations. In order to get enough statistical power to see this, we needed to analyze data on more than 100,000 patients pulled from a provincial Quebec database of millions of patients – impossible with a representative population in the US. Yet, the effect could be large: if our preliminary results hold up, changing how we prescribe these drugs could save thousands of lives per year in North America.

5) Indirect benefits of a stable society. A society in which everyone has enough health care is different in many ways from a society where many people lack it. The simplest example is infectious diseases: If all the poor are up-to-date on their vaccinations, know how to protect themselves against STDs, and so forth, rich people will also be less at risk from these diseases. A rich baby too young to be vaccinated can still die from an infection transmitted by a poor child that was not vaccinated. Better health also means less poverty: fewer people losing their jobs, going bankrupt, and so forth. Less poverty means less crime, more beautiful cities, etc. A healthier workforce means a more productive economy and more corproate profits. The benefits to the rich of a healthy lower class should not be underestimated, even if they can’t be precisely quantified.

Ways the rich might be harmed

1) Greater tax burden. As I wrote above, I am guessing that universal coverage would actually shift some of the medical costs currently paid by the well-off to the less well-off. But in terms of taxes, the opposite is likely to be true (assuming the system is funded by taxes) – if taxes go up to pay for more care, they are likely to go up more for the rich than for the poor or middle class. This is simply because there is more room for them to go up for the rich, who pay low rates compared to rich in other countries or by historical standards. Poor and middle-class people have less room in their budgets to be able to support a tax increase, so chances are the taxes would hit the rich harder.

Still, I maintain my argument above that overall (combining changes in tax structure with changes in insurance premiums and getting rid of free ER service for the poor), the distribution of health care costs is likely to become less progressive with universal coverage. And, combined with a large overall reduction in costs, it is hard to imagine a situation in which the average rich person would be worse off financially with universal coverage.

2) Competition for the best care. There are a limited number of talented doctors in any country. Increasing access to health care would result in more total consumption of health care, resulting in a need for more doctors, some of whom would be les talented. At the same time, cost-controls might bring down doctors’ salaries, resulting in fewer of the best and brightest going into the profession (but see my previous post for the counter-argument). And there would be more people in the system competing for access to the best doctors. Taken together, this might mean that rich people would have less access to the very top quality doctors than before.

3) A decrease in medical innovation. One side effect of the enormous amounts Americans spend on health care is that there is enormous money to be made by bio-tech companies, pharmaceutical companies, and other health care-related industries. This means that the threshold for an investor to make a wise decision by investing a new company is lower: there is a greater chance that any given start-up will be profitable, precisely because there is so much money being wasted. Presumably, more total start-ups will result in more successful start-ups, and thus more technological advances related to health care.

On the other hand, there are likely to be diminishing returns. The best companies are those likely to find funding anyway, and the more money we waste in the system, the more this is likely to fund start-ups that won’t contribute as much. Finally, it would be much more efficient to fund research directly rather than to waste hundreds of billions of dollars so that a few succesful companies will arise from the scraps.

Summary

Perhaps I’ve missed some important points here, but this seems like a relatively thorough list of ways the rich (broadly construed to include everyone who doesn’t need to worry about losing health coverage) might be affected by a universal coverage system in the US. On balance, it seems clear that they would be better off financially: their taxes might go up a bit, but overall amounts spent on health care will go down a lot, and the distribution of costs in the new system is actually likely to impose more burden on the poor and lower middle class. In addition, there are likely to be benefits to the overall economy of a healthy labor force.

In terms of the care they can expect to receive, there should be some improvements and some setbacks. I have assumed that the US is likely to implement a system that allows the well-off to purchase supplemental insurance or care as they wish, so they are unlikely to be subject to the long wait times or rationing that take place in Canada and the UK (but not in Germany, Japan, or France). However, there may be more competition for the best doctors. This is likely to be balanced by better preventive care, better knowledge of what the best care is, and less incentives for doctors to recommend unnecessary and potentially harmful procedures.

In addition to all of this are the indirect benefits of a healthy society: lower crime rates, less infectious disease, and so forth.

Have I missed anything here? Do you think the rich are better off under the current system, and if so, why? Let me know wht you think.